Do Short Sellers Front-Run Insider Sales?

47 Pages Posted: 2 Mar 2013

See all articles by Mozaffar Khan

Mozaffar Khan

Causeway Capital Management, LLC

Hai Lu

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 28, 2013

Abstract

We study the behavior of short sellers as informed market participants and examine potential sources of their information. Using a newly available dataset with high-frequency short sales data, we find evidence of significant increases in short sales immediately prior to large insider sales, but not prior to small insider sales. We examine a number of explanations that the increase in short sales is driven by public information, either about the firm or about the impending insider sale. The evidence is inconsistent with these explanations, but is consistent with front-running facilitated by leaked information. The front-running appears to be concentrated in firms with poor accounting quality, suggesting that information about a large insider sale reinforces short sellers’ adverse opinion about firm value when accounting quality is poor.

Keywords: Short Selling, Insider Sales, Front Running, Information Leakage

JEL Classification: G14, G18, G30, M41

Suggested Citation

Khan, Mozaffar and Lu, Hai, Do Short Sellers Front-Run Insider Sales? (February 28, 2013). Accounting Review, 2013; Rotman School of Management Working Paper No. 2226710. Available at SSRN: https://ssrn.com/abstract=2226710

Mozaffar Khan (Contact Author)

Causeway Capital Management, LLC

Hai Lu

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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